Important questions to ask a potential property manager

They say that you date your real estate agent and marry your property manager! So choosing a property manager requires quite a bit of scrutiny. A solid relationship with a good property manager is critical to the performance of your investment. But many property managers know what owners want to hear and getting past those surface questions is important to gauge their experience and capacity. In this episode, Michael, Emil, and Tom will share the interview questions they use to evaluate a property manager. --- Transcripts Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Emil: Hey, everyone, welcome back for another episode of the Remote Real Estate Investor. My name is Emil Shour and today I'm joined by…   Tom: Tom Schneider   Michael: and Michael Albaum.   Emil: And on this episode, we're going to be doing a round table finding out what our favorite questions to ask as we're interviewing new PMS. So let's hop into this episode…   Jents, how you doing? What's going on? What's new? Tom, where are you first?   Tom: Great question. Physically I am in my garage, I… in previous episodes talked about building a little office shed prebuilt. Just really going through the wringer on it, I started the process tried to do it quickly, like maybe not permitted and…   Michael: Maybe not permitted used to say…   Emil: I hope the inspector is not watching…   Tom: It doesn't matter, man I'm in… So long story short, get to a Tom, I if I'd made it 120 square feet, you can do whatever you want, basically but I made it 180 square feet and I had a NIMBY neighbor calling me as they were pouring concrete. So just basically had to like start from square one, get approvals on design from the city then get sanitation review and now I'm in plan check and they're asking like very detailed structural questions. So now I need to like pay for an engineer to answer these questions and yeah, I'm in the garage right now. So I would I wish I was in my new little office but I got a newborn, who's in what was previously my office. So long story long, here. I am at the garage.     Emil: You relegated to the garage. That's your new office?   Tom: Yes, yeah. But it's good, it’s got gym in here and do some TRX and squats. Try not to hurt myself in between meetings. But…   Michael: Nice…   Emil: Awesome, now Michael what's going on?   Michael: I got a little have a couple different refinances. So I closed one last week, which is awesome cash out refinance and then I've got three more hopefully closing this week and we're looking at purchasing making a purchase here kind of shortly. So getting very excited and geared up for that…   Tom: Purchase more short, short term, or what do you what are you getting into?   Michael: I think I'm gonna do short term and do some more short term, add that to the portfolio and juice that cash flow. What about you Emil, what’s going on?   Emil: So it's actually lends itself well for the topic today. So I got a an email last Friday, from my property manager in Jacksonville, basically saying they've they're discontinuing service in these three zip codes, because they've found them to be management intensive, whatever they probably want to focus on, you know, maybe some zip codes where they get higher rent, higher fees, whatever it is, they don't like managing them. So I'm on the lookout for a new property manager. So I figured, you know, what better way than to use that as a topic for an episode? Like what, what questions you ask, you know, I haven't, haven't gone through in a while, but figure be good to just think of our favorite questions as PMS.   Michael: Getting back into the dating world again, after being in a relationship for a long time.   Emil: I don't know about you guys, but I don't love it. Do you do love like interviewing property managers?   Michael: No, I don't like interviewing in general.     Tom: I think it's, I think I respect the value in that, you know, how important it is for downstream stuff like so for myself, like, super passive, like I will like, not be super engaged. So like, knowing that, that, you know, what is it, you know, cutting your wood? I'm not using my analogies, right…   Michael: Sharpen the ax…   Tom: Yeah, sharpening the ax. But I mean, I don’t know, I'm excited in that, I know that I can give myself some downstream space, if I you know, do a good job and get a good pm in place.   Michael: Yeah, and I don't think it can be overstressed enough the importance of like finding a good PM, because I think we all agree that the investment is make made or broken by the PM and so putting in a time energy and effort on the front end to get a good one is gonna pay dividends down the road.   Emil: Yeah.   Tom: It could be like, easy to just, you know, pick the first one that’s right…   Michael: Yeah, it's so easy to skimp on that kind of stuff a stick before…Yeah.   Emil: You know, I'll revise what I said. I don't like interviewing new property managers when I have a decent property manager in place. So Jacksonville has been good, I thought they've done a great job. You know, we're not in a C neighborhood and they've actually done a pretty good job, I haven't had like a ton of stuff they've, they've been easy to get ahold of really easy to work with. So I'm not looking forward to like, going and replacing them versus, you know, when I talked about the St. Louis property managers, I went through a couple, those I was looking forward to, because I'm like, I can't stand working with this property manager, like, I'm excited at the prospect of somebody who can like, make my life a lot easier.   Tom: So what would, why are they going out of business just like, they're just tired and don't do anymore?   Emil: They're not going out of business. They're just, there's like three zip codes, they said that they're no longer servicing. So they still have, I don't know how many properties under management, they'll retain, they're just choosing to stop managing properties in these zip codes, because I think they've been higher maintenance, higher touch for them, probably, I don't know, less margin or whatever, if I had a guess…   Tom: Smart good business discipline, did they give you any references on?   Emil: They did, they gave me three people actually. So one was like a small portfolio manager literally, like, has a Gmail contact. So not even like a, you know, big PM, which I don't know if I would feel comfortable with that having tested both small PMS with like, one 200 properties versus like 1500 plus, I just think the bigger ones have like their operations a little bit more solid. I'm sure there's people out there who have experienced the opposite. But anyway, and then like a couple bigger ones.   Michael: Did you, did you ask your PM if you could pay them more to stay on?   Emil: No. If they're not interested in managing it, and I'm not going to like force their hand in like, no, no, I have no interest in like doing that.   Tom: I like that Michael, option out of the box…   Michael: Bravo man above, out of the grovelling…   Tom: Out of the box solution…   Emil: I mean, I have one property in Jacksonville like I am 0% worth it for them to like make an exception for.   Michael: I mean, with that attitude. It's no doubt.   Tom: Yeah.   Emil: The pessimists and the optimist, go ahead. It's not the pessimist, I consider myself the realist and you're just like, why not one? Which is a good attitude. I should, I respect that, I should probably ask. But anyway, moving on, what are we talking about?     Michael: Let's try to give you some questions that you will go ask the property manager, a new property manager as you're screening, right?   Emil: That's right, right. So why don't we just kind of go around and just sort of like, listen off favorite questions that you'd like to ask property managers? Either you guys want to take the first one, first at bat?   Tom: I'll take the, I'll take the first one…   Emil: Do it!   Tom: I will. So an important question, right, there's a couple of vectors in evaluating a property manager, its quality and costs, like money, how much you're paying them? So I would get explicit, my question would be around, like, what are all the different ways that you know, maybe worded a little bit better, but like, what are all the different ways that you can make money off of me, you know, so in this, it's surprisingly, like, not standardized, you know, from the in the different ways. So for example, like some property managers charge a monthly flat rate, some take a percentage of rent, the way that they charge you on maintenance, there's a lot of different ways to do that. So you need to have a really clear understanding on all of the very specific ways in which they charge you, some of the examples on maintenance could be a percentage, upcharge, they could charge you a flat, like dollar amount for doing that. There could be breakup charges, where if you fire you know, if you get rid of them, or you sell your property, I've experienced that, that was awful, I wish I had asked that question before.   So I would be, you know, get clear understanding of what are all the different ways that they can make money off of you? That would be my my question, and then kind of verifying against that with the PM agreement, getting a copy of that PM agreement. I kind of asked two questions there. But yeah, I'll go with what are all different ways you can make money.   Michael: Yeah, it's a really good one. It is so interesting. Tom, like you mentioned, it's so not standard, so not uniform, like everyone knows you're gonna go pay an agent to buy this property, you're gonna pay him 3% pretty much across the industry, property management, it could be you know, anything under the sun. In terms of fees and cost structure.   Tom: I pay $1 technology fee to avoid a property manager. It annoys me so much when I see it, it's like oh, is this like rustproofing?     Michael: But look at that…     Tom: Yeah, I let it slide like they're good but it's like it's funny you know, the dollar is not impactful into my yield at all but me feeling like they're trying to like you know, sell me something…   Emil: Nickel and dime…   Tom: Yeah, yeah. Yeah. It's like, I don't know, I've been like meaning to tell them like this charge is stupid. Like just charge like, an extra something somewhere else. Don't don't charge me.   Michael: Don't show it to me.   Tom: …You made up you know? Yeah, yes…   Michael: That's really a good one Tom   Emil: Along those lines, I had this property manager, my first property manager in St. Louis. They were they were flat rate and I think with flat rates really important you dive into those numbers because I've found just personal experience that flat rate like, can sometimes seem like the lowest cost, but then they'll make it up in other areas like this property manager would literally charge me, for somebody driving to the property, like they would calculate the time and charge me $6.41 for the drive out to the property or someone being on the phone with a tenant, they would charge that time. So if they were on the phone for 15 minutes, I got charged, you know, 25% of the hourly rate. So like, yeah, ask about, like, literally ask them that question. What do you guys charge me if tenant calls, do you to charge me to drive out to the property, like, drill in and ask like, really specific questions.   Tom: So lens, the question of like, perverse incentives, you know, lightly, obviously, the property is trying to make as much money as they can, and they have like, all these little like, mechanisms, you know, like, let's get aligned on what we want is for another discussion, who is up for the next question?   Michael; I'll take a stab at it. So a question that I really like asking property managers is, what types of properties they specialize in managing and if they say all of them, they're either, they're either a liar, or they're not good at whatever it is you're trying to accomplish. So making sure that they are equipped and have experience managing the type of property that you have and so like for this for you, you're in what you said, a C minus neighborhood, like, make sure that they have experience managing those types of properties, because that's what they're going to be good at and so I don't want to be the guinea pig, I don't want to be the first, the first owner that gets in a property manager managing a unique style of property or one that they're just not familiar with. So that can be student rentals, that can be section eight that can be you know, assisted living any kind of specificity around whatever makes your property unique, make sure that they have experience doing that thing.   Emil: Such a such a good one. I've had I think every single property manager I've gotten on the phone with I've asked that question and they do always say all types, all areas. So like, again, it's just one of those things where you just have to I think they're just so used to that question like, most investors are probably asking the same questions and it's on you to like really drill down like, what zip codes, what kind of properties single family multifamily what kind of multifamily like you just have to…   Michael: Tell me the breakdown, percentage breakdown? What's you know, and where?   Emil: Totally.   Michael: Yeah, don't just accept their answer at face value because I think you're right. I think a lot of these, essentially, because like I said, the Roofstock Academy, we're so focused on educating investors and equipping investors with like actionable usable tools. So a lot of folks who are in the academy are probably asking these questions. So they probably heard those questions before, so they might have a rehearse or a canned response. But so push, you know, they'll be ready to push people a little bit.   Emil: Yeah. Yep. Alright, so mine, it's not really a question. It's more like before I go ask questions, but you reminded me when you mentioned the academy, go ask people, you know, who invest in that area to give you some recommendations. So I feel like even you know, before, you're going to ask, like, building your list, the most important part, right? So ask people, you know, as people who invest there, ask them how long they've been with that property manager, if they've been with them for a month? Probably you don't have a good idea yet of like how good they are, right? Like, I've had people who say, oh, I recommend so and so how long have you been with them? Two months, it's like, you haven't really had enough time to like judge this property manager, maybe yet you've been able to judge their onboarding, but like, not quite enough time. So ask people you know, get recommendations before you even go talk to PMS.   Michael: So Emil, if for all of our listeners who are just starting out, or if I'm going to go invest in a new market, and I don't maybe know anyone that invests in that particular market, what are some things that I could do to go either meet people or go get my hands on some? That sounds terrible, go get my hands, the people. We're gonna go, go, go get access to people that are investing in that area to ask them for recommendations and references.   Emil: So obvious plug Roofstock academy, awesome. I have found such good recommendations in there personally, and that's, you know, me just being honest, as an observer.   Michael: I just refiled with a lender that came from one of our Academy members to so I'm right here with you.   Emil: I mean, as you know, it's like any community as it grows, like you just get better and more feedback, more points of feedback, right? When your groups like 20 people you don't have as many now that there's hundreds and hundreds it's just like a better feedback loop. Biggerpockets can be a good one, I've found that to be hit or miss you kind of get like, I don't know people, some people saying go with them. Some people saying they're horrible, but again, you're just building your list. So Like BiggerPockets you know, if you're investing in Jacksonville like I am, there's gonna be tons of threads on people asking that already, you can go in and ask yourself. Local meetups, so you can probably Google Jacksonville Real Estate Group or whatever and find a local investment group and go ask them and I'm running out of steam and that's it all the places I can think of…   Michael Albaum: All good answers.   Tom Yeah, I'd say you know, your, your, your broker to your, your whatever your team, you know, like, perhaps your lender, especially they do amount of no harm and asking they could say, I don't know. A successful investors are okay, asking questions, like not afraid of like looking silly, sometimes asking questions. I want to dig in a little further…   Emil: Can I add another point zero before you even like start asking questions, just like, let's say you, you talk to one property manager, and you're like, oh, man, I really get a good feeling from this one. I would recommend continuing down the list and like, talk to some backups, because you know, we've mentioned on the podcast, you don't really know until you try him out and it's good to just have a couple backups in hand for if things don't work out, so…   Michael: Well, I agree a 1,000% Emil but not only I think if things don't work out, I think it gives you a really a lot of perspective around, hey, I had this really great conversation with PM-A and that's what I want to go with. But now that I have spoken to PM-B the first one maybe doesn't sound too exciting, because I heard there's really great things from the second one. So, I think it kind of helps level set expectations around hey, what's available in the marketplace?   Emil: For sure. Alright, Tom, you got a you another one for us?   Tom: I think there are a bunch of questions that you can templatized and in that initial correspondence, like send them like a list before on the phone. So this is kind of like a sneaky, I'm out in a couple of questions here. But questions that I would ask to that property manager or perhaps even as like a prescreening, you know, list of questions is, how many, how many units do they have under management? How long and how long they have been operating?   So you know, really simple, discreet kind of answers, and that there's like a, you know, simple one. You know, it's not like ambiguous, but for units under management, I think that's helpful to know if I think this came up a little bit earlier in the conversation, like how big of a fish this this person is, I would say it's market to market on how important the response to that question is, or how, like telling. So like, if I'm buying in a small market, it would be surprising to find a property manager with a ton of units under management. But I would be a little bit concerned if, say, I'm in a smaller market that person has, what do you guys say the benchmark would be like, maybe like, less than 200 properties under management? I, I know, in some of the larger markets, I'm in, you know, my property management has close to three or 4000, you know, units under management. So I like having a property manager with a little bit more units under management, and that they just, they're probably processes are a little bit more hardened.   So that's the first question, right, how many units under management expect there to be less in smaller markets, I tend to like property managers with more units under management and the other one on the year, until I just took two of them is, you know, I don't want like a property manager who's like just starting just getting things going. You know, I also don't want like a dinosaur that's doing stuff really old. So it's, it's putting it all into context of all the different responses you get, I think, kind of based on what you are looking for in a partner in that market, finding that right fit. I can throw in more questions related to asking them about their technology and stuff, but I'm going to not steal too many of them. But my tip here is it's okay to include a list of questions in an email before, like having that initial call with them and there's like a slew of these simple kind of questions that it should be easy for them to respond to units under management, how long they've been, you know, in business, those type of questions.   Michael: Yeah, I think that's such a good point, Tom and especially the types of questions that have just like factual answers, like this is the answer, as opposed because there's no like, interpretation there. There's no getting a gut feeling for it's like, hey, they either are or they're not or this is what it is. So I love that. I love that suggestion.   Tom: Am I using discrete correctly? I think like, words like…   Michael: That sounds right. Tom: Sure, yeah.   Michael: Go with it!   Tom: Use your confidence, you know, not…   Emil: Inflexion…   Tom: What do they call when your tone goes up when the end and like what you're saying? Yeah…   Michael: Monotone   Tom: A solid tone all the way through.   Emil: I'm curious if you guys… Tom, I'm with you now in your unit count. Like I've tried someone who had on the lower end in the market. Again, this is just me trying one time, I found the exact issue you said like, they didn't have a very built out team, this owner was like, really the point person, which I thought going in was great because I had someone I could, you know, like, lean on more. But I just found that he was frazzled and working on too many things at once, and things would just get dropped all the time. So I'm with you now that I like someone who has more of a built out team people who like, you know, someone who does leasing someone who does maintenance someone who does XYZ. So Michael, have you felt anything different? Are you kind of in that same boat now to… from like, personal?   Michael: It's totally a mixed bag. So I have one property manager, she's a husband and wife with her son team, and she's great. But if she hadn't been hit by a bus tomorrow, like that's gonna be a big problem. So I think this kind of bleeds into my next question is, is recommending talking to the property manager about their team and if it's a one person operation or a smaller operation, that can be sometimes beneficial. I've had really good experiences with small team property management, because a very personable, they know that community, they have a really high quality tenant experience.   But the insurance side of me is like from a risk mitigation standpoint, what if something happens to that location or that person, then you could be in real trouble and so you don't want to be, you know, you don't want to have a single point of failure, that could be catastrophic and that's what I found to be potentially the case with these property managers and I'm always I'm constantly pulled back and forth, because I don't want to not use someone that's good for fear of that if something catastrophic happens, I'm going to be in trouble. I'm like, no, I should just, you know, hope for the best kind of thing and if that catastrophic, things happen that reevaluate, but I'm gonna throw a good thing away. Because I'm living in fear kind of thing.   Emil: Got it, I was hoping you had that experience, because I feel like, there are plenty of small shops that do a good job, I just wanted to, you know, talk from my experience, and then it's cool to hear your experience has been the opposite on some cases.   Michael: Totally and I think oftentimes, too, like with a smaller Property Management outfit, you could almost be that bigger fish in a smaller pond, even with a couple properties. So depending on how many units they have, under management, depending on you know how they operate, you could be getting a lot of attention, versus going with a larger property manager, because they have the infrastructure because of the systems in place, you might just be a number to them and it might be a lot less personal. So pros and cons to both and this is why I think the exercise you're going through right now and actually talking to these property management companies and getting a feel for okay, well, how do I fit into their overall end game is really beneficial.   Emil: Okay, so what else do I have? I have my list here in Evernote of questions I asked last time, so I'm cheating a little bit, but I like to ask if they own any rental properties themselves. I like knowing that the property manager is not just in property management, because they heard about or whatever. Like, I like to know that they were an investor themselves, they can think like an investor, empathize with an investor know, know what they're looking for. I've always liked working with property managers who actually currently own, not like they used to, and then they got rid of them. I've talked to those PMS and experience wasn't as great. I'm talking like, they have their own investment properties along with the property management business. I like that they're their investors themselves. Do you…   Michael: I do. But before I share any experience, I'm curious, do you think that could create a conflict of interest if the property manager has a unit vacant of their own at the same time that you have a vacant unit?   Emil: I don't think so, I think if two vacant if they can't fill two vacant units at the same time, they're probably not a good property manager, anyway. Dozens of vacant units at the same time, right. So alright, so I think that's probably a good spot to end it. I know there's endless questions you can ask but I think you know, you just rattled off like six to nine between the additions that we kind of threw in there, so I think…   Michael: Depending on how you count if you're Tom.     Emil: Just gonna throw seven into one.   Michael: So yeah, I'll give you one…   Emil: If you're looking for a property manager, I hope this helps you out, I hope you have a nice list to start with and as always, we will catch you in the next episode. Happy investing.   Michael: Happy investing!   Tom: Happy investing!